Dow Jones VentureSource has released some figures about European
venture capital which we should all take a look at and chew over. The
headline news is something that you might not have predicted a few years
ago. Given that bigger European tech companies have been largely drawn
from the Enterpise/B2B space, it’s significant that consumer Internet
companies are now leading the charge. But the trends also show that
European tech companies are suffering from too few exit opportunities
which is leading to later-stage financing rounds and less deal activity.
According to VentureSource, venture-backed companies based in Europe
raised €1.3 billion through 273 venture capital deals during the second
quarter of 2012. This represents a 14% increase in capital raised. But
at the same time there has been a 20% decline in deals from the same
period last year.
Consumer technology services saw the greatest gains of any industry
in the second quarter, raising €493 million through 72 deals. This was
more than double the €239 million raised during the same period last
year “despite only one more deal being completed”. Almost two-thirds of
the capital went to the “consumer information services” sector, which
includes social media, online entertainment and search companies.
In addition, 62% of deals in the second quarter went to early-stage
companies, up from 58% in the same period last year. Early-stage
companies also accounted for 32% of capital invested, on par with the
second quarter of 2011. Second-round deals accounted for 19% of deal
flow and 18% of capital invested, down from 25% and 28%, respectively,
in the year-ago period. Later-stage deals accounted for 19% of deals, up
from 17% a year earlier, and 49% of capital invested, a significant
increase from the year-ago period when 39% of capital went to
later-stage companies.
Also in the report:
• During the second quarter, 38 European venture-backed companies
were acquired, a 34% drop in deals from the same period last year, and
three companies went public, which was half the number of initial public
offerings (IPOs) recorded in the second quarter of 2011.
• Through the first six months of this year, venture capital
investment totaled €2.2 billion for 550 deals, a 7% decline in capital
and 10% decline in deals from the year-ago period.
• The industry trends in the second quarter largely reflect the
recently released U.S. investment figures, with Internet and software
companies faring well but significant declines recorded in the
healthcare and energy industries.
The “data” market is also buoyant. Business and financial services
companies raised €144 million for 35 deals during the second quarter, a
58% increase in investment despite a 27% decline in deals. The business
support services sector, driven by interest in marketing, advertising
and data management companies, raised €108 million through 26 deals
during the second quarter, double the amount invested in the same period
last year despite a 28% drop in deal flow.
The “IT” industry – or traditional software – raised €215 million for
73 deals during the second quarter, an 18% decline in investment and a
17% drop in deal activity compared with the same period last year. The
software sector – traditionally the most popular investment area in IT –
fared well, raising €136 million through 54 deals, a 24% increase in
investment despite an 8% drop in deals. This shows that traditional
enterprise software is not quite dead in the age of the Cloud, although
the drop in deal activity is telling.
Significantly, Anne Malterre, European research manager, Dow Jones
VentureSource puts the lack of deal activity combined with investment
growth down to a “lacklustre exit environment” keeping companies private
for longer. The larger financing rounds come from companies need to
grow, thus boosting the amount invested.
However, the data shows what we’ve been observing on the ground: VCs
increased the percentage of deals done for early-stage companies and
their “interest in online start-ups remained strong.”
So something has to give, somehow, at some point in terms of deal
flow. Quite what that is remains to seen, but the likelihood is that
this year marks the end of the recent cycle and the beginning of a new
one where companies wait things out until the next round of exit
opportunities present themselves. Just two examples of the end of the
cycle are the recent exits of Playfire and Moonfruit. There will be
others.
The full Dow Jones information
is here.
